Canada's main oil-producing province Alberta on Thursday forecast an increased surplus of C$5.5 billion ($4.06 billion) for the 2023/24 fiscal year, fuelled by strong bitumen royalties and higher income tax revenues.

Earlier this year Alberta had forecast a budget surplus of C$3.2 billion.

The province said volatile oil prices, continued inflation challenges and uncertainty due to slowing global growth could still impact its finances, however, and warned debt servicing costs will be higher than previous years due to higher interest rates.

"Our second-quarter fiscal update is another positive report, showing strength in Alberta's finances and economy and positioning us for future growth and prosperity," Finance Minister Nate Horner said in a statement.

Alberta's economy is expected to grow 2.8% in 2023, in line with government forecasts, although the province said the pace of growth will be slower compared with the last two years when Alberta was recovering from the COVID-19 pandemic.

($1 = 1.3557 Canadian dollars)

(Reporting by Nia Williams; Editing by Chris Reese)